New York City, 1982. Disco is dead, and so is John Belushi. Columbus Avenue north of the Museum of Natural History is a creepy strip of storefronts peddling used tires and used needles. At Broadway and West 96th Street, a condominium called The Columbia is rising on a vacant lot where a year before had been a weedy garden. Brooklyn Heights is crawling with muggers, and on the fringes of Van Cortlandt Park in the Bronx, mothers warn their children away for fear of random gunfire. Connecting them all are rustproof-red subway cars with iffy air-conditioning, squealing through stations where, except for a handful of haunting Keith Haring outlines, most of the graffiti are just colorful language, in both senses of the term.
The city is still The City, of course. An anti-nuke rally featuring the likes of Bruce Springsteen draws 750,000 people to Central Park that June. Urban explorers begin to follow artists into Soho, where even on New Year’s Eve, you could find a dozen parking spaces on every half-lit street. The rich eat at the venerable Lutece or at the three-year-old Quilted Giraffe; the rest have the Indian-restaurant strip called Little Bombay on East Sixth Street – if you’re punk enough to venture near crime-filled Alphabet City – or that odd, cheap, hybrid cuisine called Cuban-Chinese.
And somewhere amid all this, amid Checker cabs, Alexander’s and Macy’s department stores, specialty theaters called the Thalia and the Regency, and landfill being poured off the side of Manhattan to build something dubbed Battery Park City, a real estate revolution is taking place – one in which an urban middle class of teachers, actors, cooks, clerks, store owners, and salespeople can own their apartments. Where the rest of the country is sprouting condominiums, New York City has begun to expand on a model that started in the 1920s, as building-owners – both real estate moguls and immigrant moms and pops who bought into bad neighborhoods when no one else would – sponsored conversions to “housing cooperatives.”
This was remarkable. Sure, do-it-yourselfers were always buying fix-it-uppers and homesteading themselves a brownstone in Harlem or Brooklyn. And sure, you could always buy a detached or two-family house anywhere from semi-suburban Astoria to Sheepshead Bay. But apartment-dwellers? You rented till you died, and then your children took over the rent-stabilized lease. A fortunate few lived in Co-op City or Penn South – European-style co-ops where you nominally owned your home but could only build up limited, regulated equity, in order to keep the place affordable for future New Yorkers. Most of the middle class was at the mercy of the landlord – who, though happy to enjoy one of the tightest vacancy rates in the nation, hated the rent regulations that came with that. They often made him or her too reluctant to heat and maintain an apartment properly, let alone refurbish it so that, say, the bathtub wasn’t in the kitchen.
“The first wave of neighborhood impact happened in the 1980s housing boom,” says Jonathan J. Miller, co-founder of Miller Samuel Real Estate Appraisers and a longtime speaker and academic/trade-journal author. “The pattern was [for] rental buildings [to be] converted to co-ops. Former tenants all of a sudden enjoyed equity as a result of being able to purchase their apartments at insider discounts.”
That tended to lead to the upgrading of some of the residential support services in the neighborhoods, like hardware, appliance, grocery stores and laundromats, which now found themselves catering to homeowners. Their customers “may have been the same people who [had been] renting, but owning your own home has an effect on people,” Miller notes. “Neighborhood businesses get a sense of these things, and they upgrade – your local bodega becomes a gourmet deli.”
“When a lot of these buildings were converted, most of them back in the ’80s,” remembers Barbara Fox, principal at the upscale Fox Residential Group, “there were a lot of insider-priced purchases. People who couldn’t have afforded a co-op apartment before could now be homeowners since the sponsors, in a lot of these cases, were small landlords without a lot of cash [flow], and they needed to sell” at relatively bargain prices.
Sell or Die
It wasn’t long before they were joined by the big real estate players in what quickly became a heated market. As Aaron Ziegelman, head of the Ziegelman Organization, said in 1989, “The price you have to pay for a West Side building puts you in a position where you have to co-op or die.”
And the corollary: you had to sell those co-ops or die. For middle-class New Yorkers like high school remedial-English teacher Rosie Riley, that meant she could buy her one-bedroom apartment at 50 Lefferts Avenue in what was then a crime-infested Brooklyn neighborhood for a five-figure sum: $29,000. Her rent had been $340, and to own her place cost only about $160 more to cover maintenance and mortgage – some of which she’d get back in the form of tax deductions.
Even taking into account inflation, such prices were immensely affordable, even for buyers who hadn’t lived as renters in the apartment undergoing conversion. In 1984, Frank and Toni Cohen paid $112,000 for a renovated one-bedroom in an elevator-manned, prewar apartment house on the “transitional” West 96th Street. A mechanic’s garage sat just down the street, and the nearby Taza de Oro café saw restroom drug deals go down more efficiently than the flush-water.
Within a couple of years those businesses had become a flower shop and a family diner, respectively – and respectably. The one-bedroom got blended with the adjacent $109,000, two-room studio in 1987, and over the years, the building got a sidewalk awning, new windows, a new roof, automated elevators, and a refurbished lobby with doorman. The now two-bedroom, two-bath apartment, with floor space and window for a third bedroom, would go for at least $900,000 today, judging from the $700,000 one-bedroom that recently sold there.
“Before, you had all these people who were renting, and now all these people are owners. What does that do to a community?” asks Marvin Meltzer, an architect and a former developer responsible for more than 7,000 units of New York City housing over the last 30 years. “Instead of one landlord concerned with his piece of property, you may have 80 owners concerned about it, and when that happens generally the value and the condition of the property starts to improve. People living there have an investment in it, and all these properties get better taken care of.”
The Rochdale Model
It paid to do so, both in tangible and intangible ways. New York City’s J-51 tax-abatement program, begun in 1955 to encourage landlords to rehabilitate rather than abandon run-down buildings, got seized upon in the late 1970s by co-op boards – making it a good deal economically to implement such capital improvements as new windows, roofs, and boilers.
Less tangibly, the boom may have helped lower crime rates: one Fannie Mae Foundation paper, for instance, citing a 1986-1996 study of twelve Bronx community boards, found that the six with the most housing starts experienced a 28.6 percent drop in property crimes and a 17.5 percent drop in violent crime. The six with significantly fewer housing starts saw only a 17.7 percent drop in property crimes, and a 6.3 percent increase in violent crime.
These and other such factors – public-private partnerships to maintain the parks, a revitalized downtown with the World Trade Center and Battery Park City, artists homesteading in once-rundown neighborhoods, a Wall Street boom through 1987 – fed a feedback cycle and kept the conversion boom going.
“Carnegie Hill didn’t have anything except for a few neighborhood businesses,” says Fox of that East 90s neighborhood west of Yorkville. “A hairdresser, a mom-and-pop grocery, a couple of dry cleaners.” But as the ’80s progressed, “all of a sudden that neighborhood burgeoned into a bustling, wonderful panoply of upscale shops and clothing stores and gourmet places. It takes ten years for a neighborhood to come up fully to where it has to be to accommodate a whole generation of new homeowners.”
Still – why this generational shift at this particular time in New York City’s history? “Cities used to be the place for the upper class and powerful,” says Richard M. Landman, an adjunct professor of planning at New York University (NYU). “Think of when the king lived in the castle and the peasants lived outside in the fields. Then, in the late 19th century, cities, especially New York City, became overwhelmed with people and manufacturing [businesses].” In the 1800s, several apartment associations began a form of cooperative ownership similar to a system already being used in Europe. The nation’s first of the type we recognize today, employing the “Rochdale Cooperative Principles” model, was formed in Brooklyn in 1918, when the Finnish Home Building Association created housing for Finnish immigrants.
Shortly afterward, other such ethnic or trade-union-sponsored co-ops began going up. The New York State Limited Dividend Housing Companies Act of 1927 gave corporations 50-year tax breaks and authorized the use of eminent domain to acquire sites for apartments to house middle-income families. Thirteen co-ops were built under the act, including the Amalgamated Clothing Workers Union’s 1,400-unit, limited-equity Amalgamated Housing Cooperative in the Bronx; the 12-building, 4,500-unit Cooperative Village on Manhattan’s Lower East Side; the 15,000-apartment, 50,000-resident Co-op City in the Bronx, and the 5,860-unit Rochdale Village in Queens – respectively, the nation’s largest and second-largest housing co-op – and Chelsea’s 2,820-apartment Mutual Redevelopment Houses, better known as Penn South in Manhattan.
By the 1950s, however, the landscape changed, quite literally, with the building of highways. “Highways let the rich and powerful move to Great Neck, and the poor remained in the cities with the manufacturing [industry],” says Landman. “Then the manufacturing left.” For that and other reasons, he says, “cities were having terrible social and infrastructure problems.”
When the 1970s arrived, so did a fiscal crisis, which caused the city to hit “rock bottom.” For various reasons, many stemming from the financial meltdown, a number of landlords couldn’t pay their taxes and walked away from their properties. The city took over many of these abandoned buildings, placing them in tax-foreclosed “in-rem” status. The Department of Housing Preservation and Development began using these dilapidated but mostly occupied buildings to continue housing low-income rental tenants. Working-class New Yorkers slightly up the economic scale could rent (and in some cases own a limited-equity co-op in) subsidized apartments under the Mitchell-Lama program. This was a much-lauded, affordable-housing effort created in 1955 and named after New York State Senator MacNeil Mitchell and Assemblyman Alfred Lama.
Then, in 1974, New York State’s Cooperative/Condominium Fair Practices Act kick-started the modern co-op movement. Requiring that 35 percent of tenants (later amended to 51 percent) purchase their apartments in order for the state to approve a conversion plan that would evict non-buyers, it gave incentive to both tenants and landlords.
Why co-ops instead of condos, which were the norm everywhere else? “They were around, and it was an accepted way of doing it,” says architect-developer Meltzer. The city’s first major condominium, the St. Tropez at 340 East 64th Street, went up in 1964 and “was not well received,” notes Miller. “Later on, there was a second effort that went well. But not initially. We were a co-op-oriented market.”
And a market there was. This new breed of co-op homeowners helped the city crawl back, and neighborhoods, first in Manhattan and later in Brooklyn and Queens, began to stabilize. That made the real estate increasingly valuable. So did population trends: New York City rose from 7,071,639 residents in the 1980 census to 8,008,278 in 2000, adding nearly a million people. After an economic slowdown in the first half of the 1990s, the market returned, with cooperatives giving way to condominiums.
That reflected buyers’ desire for actual real property rather than shares in a corporation – “No one’s in your business, you own this piece of dirt yourself,” Meltzer puts it – but it was also a reaction to the reputation that co-ops had developed for being peevishly restrictive, with micromanaging house rules and the same sort of bureaucratic authority that most professionals instruct against.
“Any time that you constrain the flexibility of marketing a property or selling a property, generally [you’ll get] the lowest price you’ll achieve for a property,” says Miller. “On the one hand [you have] boards who view their role as a gatekeeper for whoever enters a building – the idea being to theoretically enhance compatibility of shareholders. But the lesser flexibility could result in lower values.”
“Luxury co-ops wanted to be like private clubs, governing who their neighbors were going to be. That’s an antiquated thought process now, even though it still exists and will continue to exist,” says Fox. “But I think there’s a new mode of thinking where people want more flexibility in their living situation. Someone in the financial industry may be relocated to London for two years, and want to be able to rent out their place in New York.”
That can have economic implications for the value of your property. “I did a joint study with NYU in 2003, analyzing 100,00 transactions to understand the value differential” between co-ops and condos, says Miller. “The study found that it was just under 10 percent, all else being the same. That’s why new development has been targeted as condominiums. If you have a site and want to maximize it, that’s what you’ll do.”
And they’re doing it – in neighborhoods all over the city. In the course of the next 10 to 25 years, “Brooklyn is going to be an amazing place,” says Elliot Tamir, principal of the Tamir Group – who, not surprisingly, is developing a 20-unit luxury condominium, The Aria, in Williamsburg. “Coney Island will change; it will be a major tourist attraction. Long Island City – we’re seeing great things along the waterfront. The Bronx – I really don’t know. Staten Island, I don’t see much changing there [over the coming 25 years].”
“The amount of development in Brooklyn is phenomenal,” says Miller. “We’re seeing that in Queens as well.”
“Downtown, a lot of Tribeca still hasn’t developed its potential in terms of shops and such,” adds Fox. “The Meatpacking District is not developed to its full potential yet, but it will be. Harlem is the newly emerging area. It’s still spotty, and it still will be for another five years or so.”
What’s allowing all this, says Meltzer, “is the infrastructure. Brooklyn, for instance, grows because it has a great subway system that ties into Manhattan. You have all these people living in parts of Brooklyn – Red Hook, Bed-Stuy, Bushwick – where six, seven, eight years ago you wouldn’t have imagined anyone building new condos there.”
But infrastructure is more than bridges and subways. There’s a human infrastructure of police, firefighters, teachers, retail clerks, and other workers indispensable to the running of the metropolis and yet not earning luxury-condo salaries. New York City has lost over 54,315 rent-stabilized units to decontrol since 1994, according to the Rent Guidelines Board. In San Francisco and other similarly high-cost cities, workers priced out of inner-city housing are being banished to the exurbs, beyond the expensive suburbs, resulting in “super-commuter” hours of travel, high commuting costs, and resultant time away from family and local community involvement – none of which can possibly be good for a society in the long run.
“Inner-city housing has always been expensive,” says Landman. “If you wanted a mixed economic blend of people, you needed some sort of housing subsidy,” such as that provided in the Mitchell-Lama program. “But in the last 25 years, these funds have dried up. Developers are building mostly market-rate or ‘80/20’ housing,” in which 20 percent are theoretically reserved for middle-income people. “The city is running out of in-rem housing units, so the landowners are trying to maximize their investments with market-rate apartments.”
To be sure, politicians are aware of the need to house workers. Mayor Michael Bloomberg, in his 2006 “State of the City” address, said the city had funded the construction and/or rehabilitation of nearly 50,000 affordable housing units over the previous four years. And he announced a $7.5 billion plan to build and preserve 165,000 units of affordable housing by 2013. Among the planned developments are the first new mid- and high-rise co-ops and condos in the South Bronx in a generation, and more than 500 at Spring Creek in Brooklyn under the HPD mortgage-subsidy Nehemiah Program. He also announced a five-percent preference for city workers in the accompanying housing lotteries, and a thirty- percent preference to military veterans for homes taken in foreclosure by the federal government and being restored by the city.
But it’s not just a matter of workers, who can live spread out anywhere in the city. There’s also the matter of the young artists, actors, musicians, and others who, on the one hand, make New York City one of the cultural capitals of the world, and on the other hand, create an art industry that contributes billions to the city economy. (That’s right, billions – five of them from TV/film and related fields alone). Now that they’ve been priced out of Soho, Tribeca, the East Village, Williamsburg, and other neighborhoods, where will they go?
“Without young people, where would New York be? They fuel the city,” says Meltzer. “They come to New York to do their thing, and they have to have a place to live.”
That traditionally means renting as you start out, and the future of New York City neighborhoods seems veering away from that. Maybe some new permutation will arise, of absentee co-op/condo landlords renting apartments one landlord at a time – the New York real estate version of YouTube democratization. Or it may be something we can’t envision that lets the middle class live on in the city.
“There are no longer areas of the city that no one wants to live in,” observes Landman. The middle-class stabilization brought on by co-ops and condos played a major part in that, and apartment homeowners should be proud of the role they played. Without their equivalent in the next 25 years of New York, we could be looking at a nondescript Any City, USA, a Houston on the Hudson. What would happen to our land and personal values, then?